3. present value method in comparing projects? PR 26-5B Alternative capital investments OBJ. 3, 4 The estimated net cash flows from each site are as follows: Year 1 2 Net Cash Flows Wichita Topeka $310,000 $400,000 310,000 400,000 310,000 400,000 310,000 400,000 310,000 310,000 3 4 5 The committee has selected a rate of 20% for purposes of net present value analysis. It also estimates that the residual value at the end of each restaurant's useful life is $0, but at the end of the fourth year, Wichita's residual value would be $500,000. Instructions 1. For each site, compute the net present value. Use the present value of an annuity of $1 table appearing in this chapter (Exhibit 5). (Ignore the unequal lives of the projects.) 2. For each site, compute the net present value, assuming that Wichita is adjusted to a four-year life for purposes of analysis. Use the present value of $1 table appearing in this chapter (Exhibit 2). 3. -Prepare a report to the investment committee, providing your advice on the relative merits of the two sites. What advantage does the internal rate of return method have over the ne The investment committee of Auntie M's Restaurants Inc. is evaluating two restaurant sites. The sites have different useful lives, but each requires an investment of $900,000 JUU MUUN UULIWibe dave blank 1. 13 14 15 16 Net Present Value Analysis 310,000 Witchlta: Annual net cash flow (at the end of each of 6 years) Present value of an annuity of $1 at 20% for 6 years (Exh. 5) Present value of annual net cash flows Less amount to be invested Net present value 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 400,000 Topeka: Annual net cash flow (at the end of each of 4 years) Present value of an annuity of $1 at 20% for 4 years (Exh. 5) Present value of annual net cash flows Less amount to be invested Net present value 2. 32 1 B D E A 2. 2 0 G H I Net Present Value Analysis 7 8 9 Presant Value of Not Cash Flow Witchita Topeka 0 Present Value of $1 at 20% Year 1 Year 2 Year 3 Year 4 Year 4 (resid. value) Total Amount to be invested Net present value Net Cash Flow Witchita Topeka $ 310,000 S 400,000 310,000 400,000 310,000 400,000 310,000 400,000 500,000 $1.740,000 $1,600.000 11 2 13 14 15 16 37 98 19 50 51 52 53 3. [Key essay answer here) Pr. 26-5B Calculation Mode Automan Workbook Statistics